With the stock market at record highs, it can be difficult to find attractive stocks to buy. However, there are some in Berkshire Hathaway's (NYSE:BRK-A) (NYSE:BRK-B) closely followed stock portfolio that still look like excellent choices for long-term investors. Here's a credit card issuer, a real estate investment trust, and a major U.S. bank that are all worth a look right now.
This credit card issuer is making some exciting moves
American Express (NYSE:AXP) has been a major component of Berkshire Hathaway's portfolio for a long time, and Warren Buffett has repeatedly praised the company's business model and its management.
Its recent performance helps illustrate that Buffett is right. Over the past couple of years, management has taken a potentially devastating situation -- the loss of Amex's Costco partnership -- and has managed to grow its earnings impressively. In fact, American Express's full-year 2017 earnings are expected to be higher than they ever were while the Costco partnership was still in effect.
I'm also encouraged that American Express once again seems to be focusing on the higher end of the credit card market, which has historically been one of its key competitive advantages. There has been increasing competition in the ultra-premium credit card market for some time now, and the 2016 introduction of the Chase Sapphire Reserve credit card threatened to steal market share in the affluent frequent-traveler demographic.
However, so far in 2017, American Express has revamped its flagship Platinum card with some unique benefits, and has introduced arguably the most feature-rich hotel credit card in the industry as part of its newly expanded Hilton co-branding agreement. This shows that Amex is willing to fight for its most lucrative customers, and this is certainly a fight that the company has been able to win in the past.
A REIT that works in any economy
Net-lease real estate investment trust Store Capital (NYSE:STOR) is the highest-yielding dividend stock in Berkshire's portfolio, with a 4.8% yield based on the current share price. It is also one of Berkshire's newest investments, added to the portfolio just a few months ago.
If you're not familiar with net-lease real estate, it generally refers to freestanding, single-tenant commercial properties that are under long-term lease agreements with the tenant being responsible for taxes, insurance, and maintenance expenses. To make a long story short, this creates a steadily growing and predictable income stream, while also minimizing vacancy and turnover risk.
Store Capital owns 1,826 properties and has an extremely impressive 99.5% occupancy rate. The company has 382 different tenants that operate in 102 distinct industries, and there is an average of 14 years remaining on its leases with an average annual escalation (rent increase) of 1.8%.
More than 1,500 (83%) of Store Capital's properties are occupied by businesses with service-based components (which are inherently e-commerce resistant), such as movie theaters, early childhood education centers, and health clubs. Restaurants are a major component of this, making up 727 of the properties, with major tenants such as Applebees and O'Charley's. The rest of the portfolio is made up of retail and manufacturing businesses.
This bank could have several positive catalysts on the way
One of Warren Buffett's largest stock positions is Bank of America (NYSE:BAC), which has more than doubled in price since early 2016. Not only has the bank been the beneficiary of rising interest rates, but management has done a fantastic job of improving asset quality and efficiency, and transforming the bank into a steadily profitable institution.
Despite the strong performance, however, there are several reasons why Bank of America could go even higher. I already mentioned interest rates, and the Federal Reserve is widely expected to raise rates several more times over the next few years. Bank of America said in its third-quarter earnings report that a 100-basis-point shift in the interest rate yield curve would translate to $3.2 billion in additional net interest income annually, so this could certainly push earnings higher.
Tax reform is another potential catalyst, as banks are a highly taxed industry. Bank of America's effective tax rate for the first nine months of 2017 has been more than 31%, so a 20% corporate tax rate could certainly help. In addition, tax reform for individuals could also have a positive effect. If consumers' tax bills drop, they'll have more money to deposit and will feel more comfortable borrowing money, both of which translate to growth for banks.
Matthew Frankel owns shares of American Express, Bank of America, and Berkshire Hathaway (B shares). The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares). The Motley Fool recommends American Express and Costco Wholesale. The Motley Fool has a disclosure policy.